Ernst & Young Tells UK Government Not To Rush Corporate Tax Reform

by Robert Lee, Tax-News.com, London

04 November 2003

Accounting firm Ernst & Young has urged the government to continue its consultations on the reform of corporate tax, fearing that new laws may be hastily pushed through leading to a more complicated system and defeating the whole object of the reforms.

"As long-standing proponents of corporate tax reform, we would like to make it clear that we welcome the continuation of the consultation process and the opportunity it provides for fresh thinking on the structure of corporate taxation,” said Aidan O'Carroll, Head of Tax at Ernst & Young”

“However,” continues O’Carroll, “we are concerned that a timetable for reform has yet to be set although we have heard rumours that the transfer pricing, thin capitalisation and leasing proposals will be implemented in the forthcoming Pre-Budget Report.”

"To rush through some areas of the reform, particularly where these fundamentally change the current basis of taxation, without a proper process of consultation and before other areas have even been agreed, could potentially lead to a system that is even more complex than it is now,” warns Mr O’Carroll.

The Ernst & Young Head of Tax stated that a thorough period of consultation was preferable “even if that took several years and had to be introduced in phases,” rather than a “dash for a 'quick win' followed by several years of tinkering to get the mechanics to work properly.”

"Our general feeling with regard to the proposals put forward in this paper is that instead of starting with a blank piece of paper the Government may be attempting to compromise by patching up elements of the existing system. We are concerned that the relative cost of some of the proposals is driving the reform,” concluded Mr O’Carroll.

The government announced its intention to reform the corporate tax system last August, but the need for Whitehall to look at the changes "in more depth" could prolong discussions until August 2004. One major consequence of the reform could be that the capital gains system moves to an income-based regime, which the Treasury hopes will make the system simpler. However, many businesses contend that it could actually make it more complex.

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